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The Honolulu Advertiser
Posted on: Friday, May 21, 2010

Hawaii's state tax refunds will start going out today

By Greg Wiles
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

At Hawaiian Island Creations at Ala Moana Center, staffer Lydia Kwok arranges clothes. The chain's 10 shops have seen a sales slowdown since late March.

BRUCE ASATO | The Honolulu Advertiser

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Hawaii news photo - The Honolulu Advertiser

At Hawaiian Island Creations at Ala Moana Center, staffer Lydia Kwok arranges clothes. The chain's 10 shops have seen a sales slowdown since late March.

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It's not a lot of money in the scheme of Hawai'i's $50 billion-plus economy.

But the nearly $125 million in state tax refunds that start going out today will provide a welcome psychological lift as businesses try to come back from an exhausting economic downturn.

"I'm glad to hear that," said Frank Kudo, chief executive of New City Nissan in Kalihi. "Let's hope the consumers will pick up this economy, because it sure is needed."

Refunds for those who filed their state income tax returns in January and February about $125 million of the total $207 million of refund claims to date will be sent to about 143,000 tax filers starting today. The first to get their refunds will be those who signed up for direct deposit. Mailed refund checks begin going out May 28.

While state tax refunds usually start arriving well before May, this year Gov. Linda Lingle and the state Legislature decided to delay sending checks out until July to help balance the budget. But with tax collections improving in recent months, Lingle decided she could release some of the refunds now.

The exact economic impact of the refunds is difficult to ascertain.

But the timing of the refunds coming as a nascent recovery takes hold is embraced by many businesses. At Hawaiian Islands Creations, chief executive Leigh Tonai said there had been signs of a recovery under way, but then a slowdown occurred in recent weeks among retailers.

For his 10 surf shops, same-store sales slowed around the end of March.

That typically occurs for some retailers as shoppers hit the pause button while they figure out their taxes. But retailers say the wallets usually come out again after mid-April.

Tonai said that didn't occur this year.

"It's been slow the last month, month and a half and I would think some of that is because people aren't getting their money back from the state," Tonai said.

But state tax refunds will be arriving over the next few weeks. That's got Tonai thinking he's going to be seeing more customers buying T-shirts, tops, skateboards and other items.

"I would expect some kind of bump because of that."


The same is expected at Newtown Appliances Sales and Services Inc. in Pearl City, which already is seeing an increase in customer traffic because of the pending rebate program on energy-efficient refrigerators.

Sharon Kawasaki, Newton office manager, said April was slower than normal.

"We were thinking it probably was because of the taxes," Kawasaki said. She said people probably will be out looking at new appliances again knowing that they're in line for a refund in coming weeks.

"That's a good thing."

It also is a good thing in terms of shopper psychology, reinforcing consumer confidence at a time when it appears Hawai'i's economy is poised for recovery, albeit a slow one.

Some aspects of the state's economy are already beginning to improve.

In March, the average amount hotels charge per available room, a significant measure of visitor industry health, rose for the first time in two years. That was accompanied by a rise in room usage meaning the industry brought in more by filling more rooms as well as raising prices.

Also in March, the number of people employed rose for a second straight month, while the Coincident Index, a barometer of current economic activity prepared by the Federal Reserve Bank of Philadelphia, showed increases in February and March for Hawai'i.

But there has been little good news coming out of the public sector. Frequent headlines about state government cuts, furloughs and budgetary shortfalls wear on consumer and business confidence, economists have said.

Lingle's ordering of earlier-than-expected tax refunds was due in part to better than expected tax collections.

During the first 10 months of the state's fiscal year, the collections were off only 1 percent, as compared with the 2.5 percent decline that had been forecast.

The tax returns signal that the tide could be turning.

"It's a sign that shows government's financial situation is improving," said Eugene Tian, an economist with the state Department of Business, Economic Development and Tourism.

"That will encourage people."


Lowell Kalapa, head of the Tax Foundation of Hawaii, agrees that it may help boost consumer confidence, though he said he wishes Lingle had released the refunds earlier. In normal years the refunds would start going out in February, he said.

"Certainly not having the money out there in the consumers' hands is going to hinder any kind of activity," Kalapa said.

But the lifting of the moratorium on some refunds is better than keeping the money in the government's hands, he said.

"It's good news for the taxpayer, that's for sure. They depend on refund checks."

Having the money out there should result in more spending and more jobs, he said.

"I think a lot of people will be happy."

Not everyone agrees with that last point, because consumers' reluctance to spend may linger even as the economy revives.

There's still some question whether people will run out to spend their tax returns, or whether they will add to savings or pay down debt.

It's thought that some of the $250 federal stimulus checks that went out to Social Security recipients last year went to paying off credit card balances and other debt.

"We do need to realize this is a different circumstance," said Barbara Poole-Street, Chaminade University acting dean of Professional Studies and a professor of economics.

At New City Nissan, Kudo is hoping people are tired of saving and hunkering down.

"Anytime anyone has any discretionary income, that's good for us," he said. "It will be hitting us at the right time."

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